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Lund University Agenda 2030 Graduate School is a global, cutting-edge research school and collaboration platform for issues related to societal challenges, sustainability and the 2030 Agenda. The 17 PhD students from all faculties at Lund University enrolled with the Agenda 2030 Graduate School relate their specific research topics to the Sustainable Development Goals. In this blog the PhD students of the Graduate School discuss topical research and societal issues related to the 2030 Agenda.

Transparency in Investment Arbitration as Participatory Limitations

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Posted on 25 November 2019 by Soo-hyun Lee

The views expressed in this publication are those of the authors and do not necessarily represent those of the Agenda 2030 Graduate School or Lund University. The present document is being issued without formal editing.

Private entities involved in investment treaty arbitration often elect to keep arbitral proceedings and specific details of an arbitral award confidential in cases when they deem corporate and/or propriety information a risk to publish. The International Centre for the Settlement of Investment Disputes (ICSID), the most commonly employed forum for ISDS, in 32(2) of its Arbitration Rules of April 2006 requires the tribunal overseeing the dispute to sufficient measures in protecting the confidentiality of propriety or privileged information. This is reiterated in Article 13(2) of the Additional facility of the ICSID Arbitration Rules, which casts a broader net in terms of the information that the proceedings and decision must prevent unwarranted disclosure. In addition to the ICSID, the United Nation Commission on International Trade Law (UNCITRAL) in Article 25(4) and 32(5) of its Arbitration Rules (1976) also requires that ISDS hearings are held in private unless both parties consent to open them to the public. This work first reflects on the normative implications of the confidentiality requirement and then how those requirements and implications raise ethical considerations in international investment law research.

On a normative level, this has been controversial due to the fact that investment treaty arbitration often deals with matters that fall under the remit of the public interest. Not permitting public access raises questions of transparency and accountability, not only on the competencies of the tribunal but also that of the government. While this is more pronounced for the State as the respondent party to the dispute, it also applies for the private sector entity as a contributing unit to community welfare surplus. As per the former, whether the State behaved in a manner that is deemed violative to its treaty obligations with the home country of the investor, the arbitral award that it must furnish shall inevitably constitute public expenditure. Arbitral awards arising from investor-State disputes (ISDS) can easily run up into billions of USD in compensation and legal costs, making the issue a politically sensitive one particularly in States with strained current accounts.

On the basis of these concerns, there have been movements to increase the transparency of arbitral proceedings and awards. Currently, such public disclosures require the mutual consent of the disputing parties, as a unilateral disclosure of information could result in reputational or material damages for the opposing party, thereby putting these movements on conflicting paths. This became an especially poignant issue in Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania (ICSID ARB/05/22, 2006). The disputing parties did not have an agreement concerning public disclosure, putting the task of whether a unilateral disclosure of information by Tanzania would constitute a violative act. When the case was ongoing, there was both immense national media coverage on Biwater v Tanzania as well as calls for the proceedings to be publically available. Tanzania argued that it should be permitted to make the proceedings accessible, arguing this was in line with larger movements to improve transparency in ISDS. Biwater Gauff contested these claims, emphasizing the consensual nature of permitting the publication of propriety or privileged information. The Tribunal ultimately differentiated between the types of documents that could be disclosed, as well as the timing of their disclosure, based on the extent to which those documents are considered sensitive and the fact that a decision of this kind had to be made in case-by-case manner.

The Biwater v Tanzania dispute also brings up matters of ethical interest to international investment law research. First of all, asymmetries in the availability of materials in international investment law necessarily have disproportionate impacts on legal research. Having access to confidential documents may boost the profile of research outputs given its insider nature, but inevitably has longer lasting implications, such as inability to check the falsification of the primary materials or subjecting the interpretation of those materials to an incontrovertibly opinionated rendition. Legal research, like that of any other discipline, is built on a tradition of academic integrity upheld by peer review and institutionalized through academic journals or law reviews. Selective disclosure of key materials in conducting research in international investment law can threaten those processes. An intention or unintentional omission of certain information can be influential enough to affect the entirety of the research and its conclusions. The inability to render these materials to a standard of acceptable academic integrity makes it difficult to deem whether the research is trustworthy at risk of such falsification or even the manipulation of research, whether intentionally or unintentionally.

Unfortunately, this is not as uncommon as one may hope to believe. Researchers in ISDS face considerable obstacles in their ability to access primary sources. They are either reserved for the legal counsel of the corporations or governments involved. There are very few (with very large market shares) sources that have access to these materials and while they do not disclose those materials in their entirety, they provide summaries of those materials – at exceptionally high subscription fees. These resources are relied upon by institutions like the United Nations in circumstances when States are unwilling (or unable) to publish such materials. Those who are able to climb over the rather exclusive paywall then unwittingly grapple with issues of objectivity in the materials made available to them.

The issue of transparency and confidentiality in investment treaty arbitration has been and continues to be a deeply divisive matter. While the long-run benefits of enhanced transparency present clear benefits, the lack of motivation and incentive obstruct meaningful progress. Returning to the normative concerns of public interest, one clear illustration of the need for transparency has been very much apparent in South Korea. The country faces the loss of a USD 4.7bn ISDS case with a clear connection to the public interest and that involved many millions more paid to top shelf law firms all on a bill passed to the taxpayer. Despite vociferous public outcry, the proceedings and decision remain confidential and shall most likely remain to do so. The implications of such confidentiality on the quality of legal research also falls into the domain of the public interest, though its contemplation as such as less present in discussions on reform such as those currently underway at the UNCITRAL Working Groups. Another discussion becomes how these issues influence more vulnerable States and their capacities to channel foreign investment to achieve public interest objectives such as sustainable development.

The views expressed in this publication are those of the author’s and do not necessarily reflect the views of any institution. 

November 25, 2019

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